Congrats to Greece for getting a bailout package. An effective kick of the can down the road.
What's actually happening? Here's my understanding of it:
If you have a Greek bond that matures in a couple years, 30% of that you keep as cash, 70% gets rolled into a 30 yr Greek government bond. The coupon will be 5.5-8%.
Greece will take a portion of that 70% and put that in a "special purpose vehicle" - which will invest that into AAA govt / agency bonds - for a 30 yr 0-coupon bond.
This SPV is to guarantee the principal of the 30-yr Greek debt.
Though you might not like it, it might be shady, and what not - it's better than the current alternative. According to what I've read "More important, the accounting rules allow you to pretend that you are not making any losses at all."
What happens when that becomes unsustainable? Also, what about Italy and Spain? All this causes instability in the markets, and people look for safe investments in such circumstances. Such safe investments are the USD/US Treasuries, gold/silver, JPY/Japanese bonds.
USD might be a good investment right now, cause of the US debt crisis - lots of dollar shorts on - if stuff really hits the fan, there will be a massive short cover that will cause a significant dollar rally. However, there are multiple risks with that.
Gold is still the investment of choice for me.
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